Greetings. Welcome to the Townsquare Media Second Quarter 2021 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Claire Yenicay. You may begin..

Thank you, and good morning to everyone. Thank you for joining us today for Townsquare's second quarter financial update. With me on the call today are Bill Wilson, our CEO; and Stuart Rosenstein, our CFO and Executive Vice President.

Please note that during this call, we may make statements that provide information other than historical information, including statements relating to the company's future expectations, plans and prospects.

These statements are considered forward-looking statements under the safe harbor provision of the Private Securities Litigation Reform Act of 1995 and are subject to risks and uncertainties that could cause actual results to differ materially from these statements.

These statements reflect the company's beliefs based on current conditions that are subject to certain risks and uncertainties, including those that are detailed in the company's annual report on Form 10-K for the year ended December 31, 2020, filed with the SEC.

We may also discuss certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income and adjusted operating income, which we may refer to as profit in our remarks.

Such non-GAAP financial measures should be used in conjunction with all the information contained in the quarterly, year-end and current reports available on our website.

I would also encourage all participants to go to our corporate website at www.townsquaremedia.com and download our investor presentation, as Bill will reference some of those slides during our discussion this morning. At this time, I would like to turn the call over to Bill Wilson..

Good morning, everyone. Thank you all for joining us this morning as we update you on our incredible financial results and our progress through the first half of 2021.

I wanted to start today's call by providing you with our latest outlook for the full year because it is something that Townsquare team is very proud of, and then I will discuss specifically our Q2 results.

Becoming a digital-first company with a heightened focus on local has propelled our company forward the past 12 months, allowing us to recover even faster than we initially expected.

We now expect 2021 net revenue to increase to at least $410 million, which is $15 million higher than we originally forecasted just last quarter, and it is 95% of 2019's revenue.

And incredibly, we expect 2021 adjusted EBITDA to fully recover to at least $102 million, which would equal 2019's pro forma adjusted EBITDA of $102 million, and is $12 million above what we originally forecasted just last quarter. Now let me walk you through how we will recover fully to 2019 profit levels.

Our financial recovery accelerated in the second quarter of 2021. And I'm proud to announce that our second quarter financial results exceeded our goals and expectations, and in many cases, exceeded levels we achieved in the pre-COVID second quarter of 2019.

Once again, we exceeded our previously issued guidance range for both Q2 net revenue and Q2 adjusted EBITDA. I'd like to draw your attention to Slide 6 of our investor presentation, where we outline second quarter performance.

On our last earnings call, we provided key data points to help set expectations for Q2, and I am thrilled to share with you that we over-delivered and beat on every single one.

To start, given our revenue recovery and expense management, particularly corporate expense reductions, we are very proud to announce that in the second quarter, we generated the highest adjusted EBITDA of any quarter in our entire company's history. Let me say that again. Just one year after the start of the pandemic, we are back on track.

Our flywheel continues to pick up momentum, and we are setting all-time high adjusted EBITDA records. Q2's adjusted EBITDA of $30.3 million is greater than 2019's, our previous EBITDA high watermark. And when excluding live events, Q2 adjusted EBITDA exceeded 2019 adjusted EBITDA by plus 5%.

Helping drive that strong profit performance, I am also very proud to share that we set another all-time company record with the most net subscriber ads in Townsquare Interactive's history, adding approximately 1,350 net subscribers in Q2.

As a result, Townsquare Interactive's Q2 net subscription revenue grew plus 20% over Q2 2020 and is now approximately 20% of our total company's revenue on a year-to-date basis. Let me reiterate that.

Approximately 20% of our total revenue and nearly 1/4 of our total adjusted EBITDA is attributable to a monthly recurring subscription business, a true differentiator for Townsquare. Continuing with our strong revenue performance, Q2 net revenue grew plus 45% when compared to 2020, achieving 95% of 2019 second quarter net revenue.

That's a very good outcome. Yet when you exclude Live Events revenue, which remained limited in the second quarter, we made a near full revenue recovery, with Q2 2021 net revenue reaching 99.4% of 2019's net revenue, in my view, an incredible result. Broadcast revenue continued to show sequential improvement in Q2.

In Q2 2021, broadcast revenue was up plus 54% from a year ago when in Q2 2020, broadcast was down negative 45%. As a digital-first company, the primary driver of our recovery to 2019 revenue levels has been our digital business.

In total, our second quarter digital revenue exceeded 2020's digital revenue by plus 36%, with digital advertising revenue plus 50% and Townsquare Interactive revenue plus 20%. As I mentioned earlier, our success can be credited to our digital strategy.

Although we are very proud of our roots and DNA in local radio, and we are proud to call it local radio, Townsquare became a digital-first company in 2020. So what does being a digital-first company actually mean? It means acknowledging both internally and externally that digital is our growth engine today and in the future.

It means that our first priority for internal investment will be towards fueling our digital platforms in terms of personnel, product development and physical expansion. Digital-first means ensuring that our content online is as engaging, relevant and local as our content on air.

And it means that when our account executives bring out world-class advertising solutions, both digital and broadcast to local SMBs to help them grow their business, they are also taking the opportunity to educate them on how important it is that they have a strong digital presence and online storefront and how Townsquare has the tools and solutions to accomplish that.

Digital-first also means that digital revenue will represent the majority of our company's revenue in the near future. And we have 2 digital solutions that will get us there.

First, our digital advertising solutions, which today include Townsquare Ignite and Townsquare AMPED; and second, Townsquare Interactive, our digital marketing subscription solutions business.

In total, digital revenue from these 2 revenue streams totaled $180 million over the 12 months ending June 30, 2021, contributing 47% of our total net revenue in the first half of 2021. As you can see on Slide 9, digital has been the primary source of our growth over the past several years.

Only 4 years ago, digital revenue was under $100 million and contributed just 25% of our total net revenue. Fast forward 4 years later, on a trailing 12-month basis, we generated $180 million in digital revenue, an increase of over $80 million of digital revenue from 2017 levels.

Going forward, we anticipate strong double-digit growth across our digital platform as we grow from an expected a $190 million of digital revenue in full year 2021, to over $250 million of digital revenue in 3 years. Townsquare Interactive is a big driver of that growth.

We expect it to grow from $76 million of revenue on a trailing 12-month basis today, to over $100 million of annual revenue within 2 to 3 years. Since we launched Townsquare Interactive in 2012, its revenue has grown double digits versus the prior year each and every quarter, even during the worst of the pandemic.

And since reaching profitability in 2014, profit also has grown each and every quarter, reaching $23 million on a trailing 12-month basis as of June 30, with a 31% profit margin.

As I have noted on previous calls, if you were to value Townsquare Interactive on a standalone basis, one comparable company to look at would be Wix, which currently trades at 16x trailing revenue multiple.

If you applied a similar multiple or even a discounted multiple to Townsquare Interactive, that would suggest a valuation north of where Townsquare as a whole trades today.

Townsquare Interactive is an important and valuable resource for small business owners, providing mobile-enabled website development and hosting services, e-commerce solutions, search engine organic traffic and online directory optimization services, online reputation monitoring, social media management, appointment scheduling services, e-mail marketing services, website retargeting and much, much more on a monthly recurring basis.

Over the past 13 quarters, we have added at least 850 net subscribers each quarter to our subscriber base. As I highlighted earlier on the call, we are very proud that in Q2, we set an all-time record with the most net subscriber adds in our history, adding approximately 1,350 net subscribers.

As of June 30, we now provide digital marketing solutions on a monthly subscription basis to approximately 24,950 small and medium-sized local businesses across the U.S., including, but importantly, not limited to, the markets in which we operate radio stations.

Roughly 57% of our current subscription client base resides outside of our radio markets today. At the risk of being repetitive, as I've shared this on the last couple of earnings calls, I'd like to once again walk you through the vast size of Townsquare Interactive's addressable market.

Townsquare Interactive is still incredibly, incredibly underpenetrated within our local market footprint, and importantly, within additional local markets of similar size and demographics. If you would turn to Slide 12 of our investor presentation, you will see that there are a little over 28 million businesses nationwide.

Given that we focus on markets outside the top 50 cities, that eliminates over 16.5 million businesses, which gets us to about 11.5 million businesses. We then put a few additional and very important filters on the SMBs we target for Townsquare Interactive. The first filter is businesses with 20 or fewer employees.

The second filter is companies with annual revenue of $5 million or less. We then exclude certain types of businesses we have determined that are not the ideal fit for our solutions, including real estate agents, banks and other types of businesses. And lastly, we include only private independently owned businesses.

After applying all of those filters, that equates to over 8.8 million target customers for Townsquare Interactive. At a $300 per month ARPU, that equates to an estimated $32 billion total addressable market for Townsquare Interactive, of which we are only capturing a small fraction today. There is incredible, incredible, incredible upside.

We are planning to add a second Townsquare Interactive location in the Western United States to capture this opportunity, most likely in the first half of 2022.

In fact, given the success we had during the pandemic working virtually, we have already started hiring dozens of team members for our West Coast location, and those employees are now working for us remotely.

Ultimately, we believe the West Coast Townsquare Interactive location will be close in size to our Charlotte location, which, as you may recall, is currently staffed with over 600 employees. Throughout the pandemic, Townsquare Interactive delivered revenue, profit and subscriber growth, and that growth has accelerated thus far in 2021.

Second quarter net revenue increased plus 20% year-over-year as we added a record amount of subscribers. Second quarter profit increased plus 18% year-over-year, with profit margins at 30%.

In Q3, we expect to add at least 850 net subscribers for the 14th consecutive quarter and most likely will add over 1,000 net adds, with revenue up approximately plus 15% year-over-year in Q3. As a reminder, in 2020, we added approximately 3,750 net subscribers. And in 2021, we expect to add over 4,000 net subscribers.

With our second location coming online in the first half of 2022, we expect that our net subscriber additions will accelerate in 2022, 2023 and beyond. As I noted earlier, our digital advertising revenue in Q2 grew plus 50% over suppressed levels of Q2 2020. And thus, it is worth noting digital advertising revenue was up plus 23% compared to Q2 2019.

As I outlined on Slide 5, our digital advertising revenue is driven by Townsquare Ignite and Townsquare AMPED. Townsquare Ignite, our digital programmatic technology platform, had an outstanding quarter, helping to drive that plus 50% digital advertising growth.

Townsquare Ignite combines first and third-party audience data to hyper target audiences for our local and regional advertisers, providing them the ability to reach their target customer with the right message at the right time.

Ignite has been a significant source of growth for Townsquare, growing from less than $10 million of revenue in 2016 to more than $53 million of revenue in 2020. Our success with Townsquare Ignite is multifaceted, yet one strong differentiator for us, just like Townsquare Interactive, is that we own the entire Ignite solution.

All of the ad tech and the offering is in-house.

We only control the customer relationship from end-to-end from creating the right message and creative to the activation and optimization of the client campaigns to the detailed in-depth client reporting, which leads to a better customer experience and therefore higher client retention rates in our view.

Townsquare Ignite is, in essence, a client's full-service digital agency. We are confident that Ignite will be our fastest-growing revenue stream in 2021 and likely in the years to come as revenue grows from $59 million on a trailing 12-month basis today, to a $100 million within 2 to 3 years and roughly a 30% profit margin.

The other key component of our Q2 digital advertising revenue growth of plus 50% is Townsquare AMPED, which generated $45 million of revenue on a trailing 12-month basis as of June 30.

Townsquare AMPED is a digital advertising on our owned and operated network of digital brands, made up of over 340 websites and 350 mobile apps, which together delivered a highly engaged audience of 59 million unique visitors on a monthly basis in the first half of 2021.

During the pandemic, our digital platforms experienced all-time record audience levels as our local communities turn to our local brands to stay informed and be entertained.

As the pandemic subsides and life starts to return to normal, we have successfully retained this audience by continuing to provide localized, relevant content curated for our audience.

In fact, our on-air DJs, who are also digital content creators, and importantly, local social influencers create over 30,000 pieces of local content each and every month, making Townsquare one of the largest producers of local content in the United States.

Across the board, our digital offerings performed very, very well during the pandemic and in the first half of 2021, driving our strong top line and profit recovery.

As I mentioned earlier, broadcast continues to improve sequentially, but from a steeper decline as broadcast advertising on our 322 local radio stations was the most impacted during the pandemic. In Q2 2021, broadcast revenue was up plus 54% from a year ago, when in Q2 2020, broadcast revenue was down negative 45%.

We expect that our broadcast revenue will continue to rebound from 2020 suppressed levels, supported by stable rates, record new business activity, defined as advertisers who have not advertised with us in the previous 13 months and growing optimism among our existing advertising base.

We also expect some tailwinds from certain advertising categories that have yet to recover, including live event-related advertising, auto advertising, which has been negatively impacted by the industry's ongoing chip shortages and Canadian businesses, which impacts our markets in Maine and Buffalo, where the border remained closed.

To further demonstrate our broadcast recovery, I'll turn your attention to metrics published by Miller Kaplan, which are included on Slide 7. In Q2 2021, Townsquare outperformed the industry in local radio spot sales by 11 percentage points and total spot sales by 9 percentage points in our markets that Miller Kaplan measures.

Additionally, Townsquare also outperformed the industry in total revenue, which includes both total spot revenue and total digital revenue. These Miller Kaplan results demonstrate that Townsquare is outperforming its peers, not only in digital, but also in broadcast.

Roughly half of our revenue is digital, but we are also growing local market share in radio. One doesn't have to come at the expense of the other. The opposite is true, in fact.

The better we do digitally, the better we do in our core local business because the digital solutions we provide to local SMBs encourage them to trust us with their broadcast marketing budgets as well. We hosted a handful of live events in the second quarter, generating $1.2 million of revenue and $500,000 of profit, a 42% profit margin.

So far, we are seeing strong consumer demand for the limited number of events that we have operated and at certain events, we are even setting all-time records. On our last earnings call, we highlighted the Red Dirt Barbecue Festival in Tyler, Texas, that set an all-time revenue and all-time profit record in early May.

In late July, just a few weeks ago, we hosted the Taste of Fort Collins, which sold out both days for the first time ever, and therefore, set an all-time revenue and profit record as well. We will continue to ramp up our live event schedule for the back half of 2021, but we will not return to normal schedule of live events until 2022.

For Q3, we are expecting to generate approximately $3 million of live events net revenue and roughly a 20% profit margin. So let me take a moment to recap before I hand the call over to Stu.

We outperformed our expectations for the second quarter on both net revenue and on profit, driven by incredible performances across our digital platform, which contributes approximately 47% of our total net revenue. Townsquare Interactive, a major component of our digital revenue added an all-time high plus 1,350 net subscribers in the quarter.

Townsquare Interactive's recurring subscription revenue is now approximately 20% of our total company revenue and nearly 25% of our total company EBITDA. We delivered an all-time high adjusted EBITDA of $30.3 million, which was above Q2 2019 by plus 5% excluding live events.

Our improvement in adjusted EBITDA contributed a significant decline in our total and net leverage, which are now 5.8x and 5.5x respectively. We continue to see improvement in our broadcast business, and our live events business is starting to pick up pace.

Because of our strong performance and our positive outlook, we have significantly raised our full year 2021 guidance, indicating net revenue that is close to 2019 levels and adjusted EBITDA that achieves 2019 levels. With that brief recap, I'll turn the call over now to Stu, who's going to discuss our financial results in much, much greater detail.

Stu, take it away..

Thank you, Bill, and good morning, everyone. What a difference a year makes? Only one year ago, we were reporting financial results that were materially depressed due to the pandemic.

Fast forward to today and we're reporting much improved second quarter financial results that exceeded our expectations, driven by strong year-over-year revenue growth and careful expense management.

In total, second quarter net revenue increased 44.9% over the prior year period to $107.3 million, exceeding our previously issued revenue guidance range of $101 million to $104 million.

Second quarter adjusted EBITDA increased $28.2 to $30.3 million, exceeding our previously issued EBITDA guidance range of $28 million to $29 million and setting an all-time company record.

Although these year-over-year growth trends are important, we believe the most relevant measure of our performance is to compare them to the pre-COVID 2019 results. Q2 2021 net revenue declined 5.1% compared to the second quarter of 2019 and Q2 2021 adjusted EBITDA exceeded Q2's 2019's adjusted EBITDA by 0.6%.

However, it's important to note that live events generated $6.3 million of revenue and $1.6 million of profit in the second quarter of 2019 versus only $1.2 million of revenue and $500,000 of profit in the second quarter of this year.

Excluding live events, net revenue declined only 0.6% as compared to 2019, and adjusted EBITDA increased 4.5% compared to 2019. Townsquare Interactive delivered second quarter net revenue growth of 19.7% as compared to the prior year. In the first 6 months of 2021, Townsquare Interactive's net revenue increased 17.4% as compared to the prior year.

This revenue growth was supported by an all-time record number of subscribers net added in Q2 with the addition of approximately 1,350 net subscribers. Townsquare Interactive's second quarter profit increased 18.5% as compared to the prior year. And on a year-to-date basis, profit increased 24.1% as compared to 2020.

Townsquare Interactive's second quarter and year-to-date profit margin was 30% and 31% respectively. Based on their subscriber count of 24,950 subscribers and a monthly ARPU of $300, Townsquare Interactive's run rate revenue is now $90 million as of June 30. In the second quarter, advertising net revenue increased 50.4% over the prior year.

Net revenue from our digital advertising solutions composed of Townsquare Ignite and AMPED increased approximately 50.5% in the second quarter as compared to the prior year period. Broadcast advertising net revenue showed significant improvement over COVID depressed 2020 levels, increasing 54.2% as compared to Q2 of 2020.

For the first 6 months of the year, advertising net revenue increased 18.2% compared to 2020. Second quarter advertising direct operating expenses increased only 8% over the prior year or $4.2 million, leading to significant margin expansion in our advertising segment as a result of our high operating leverage.

Second quarter advertising profit increased by $24.6 million from 2020 levels, with strong margins of 33.9%. Second quarter marked the first time in over a year that we had any meaningful Live Events activity. In Q2, we hosted 11 live events, significantly less than Q2 2019, 16 events, but a solid start.

We are carefully evaluating the live event opportunities in each of our markets and we'll gradually ramp up live events for the remainder of 2021, with plans to return to a more normalized schedule in 2022.

The 11 events that we hosted in Q2 range from music-centered events such as the Red Dirt Barbecue Music Festival in Tyler, Texas to non-music events such as the Home & Garden Show in Cheyenne, Wyoming and Idaho's largest yard sale in Boise. In total, second quarter live events revenue was $1.2 million and profit was $500,000, a 42% profit margin.

As Bill noted earlier, I do want to spotlight that our second quarter corporate expenses declined a very meaningful $2.1 million or 28%, and year-to-date, corporate expenses declined $4.4 million or 31.3%, each as compared to the prior year. The decline in corporate expense is primarily due to a decline in professional fees.

For the full year, we currently anticipate corporate expense will decline by approximately $6 million. Second quarter interest expense increased $1.9 million or 24.3% as compared to the prior year and was up $3.9 million or 24.6% for the first 6 months of the year.

This is due primarily to the issuance of our $550 million, 6.875% secured bond in January of this year, which entirely replaced our previously outstanding debt. In total, our annual interest expense increased by approximately $9 million due to the higher interest rate.

However, from a cash outflow perspective, the increase in annual interest expense is almost entirely offset by last year's elimination of the dividend, which totaled $8.4 million per year.

For the second quarter, net income increased $36.9 to $10.1 million or $0.50 per diluted share as compared to a net loss of $26.8 million or a net loss of $1.46 per diluted share in the second quarter of 2020.

We'd like to remind you that any benefit or provision for income taxes included on the face of the income statement is for GAAP financial statement purposes only. We maintained significant tax attributes, including $168 million of federal NOL carry-forwards and other substantial tax shields related to the tax amortization of our intangible assets.

We continue to believe that we will not be a material cash taxpayer until approximately the year 2026. In the first 6 months of 2021, we generated positive cash flow from operations of approximately $31.2 million, a $19.5 million increase from the prior year period.

We also used approximately $80 million during the first quarter to repurchase 100% of Oaktree's capital equity interest in Townsquare and a significantly accretive transaction. We incurred approximately $14 million of fees associated with the issuance of our senior notes.

We continue to carefully manage our capital expenditures, which declined 42% year-over-year to $4.8 million in the first 6 months of 2021.

In total, we ended the quarter with approximately $25 million of cash on the balance sheet, a $5 million improvement from the end of Q1, with total debt of $550 million and a trailing 12-month adjusted EBITDA of $94.9 million.

Our total and net leverage has declined to 5.8x and 5.5x respectively, which is a material improvement over Q1's total and net leverage of 8.2x and 7.9x. Given our strong cash generation abilities, we are confident operating the business at these cash levels.

Going forward, our capital allocation priorities will be to invest in our local business through organic internal investments and to reduce our net leverage with a medium-term net leverage goal in the low 4x. Turning to our third quarter outlook.

We expect third quarter net revenue to increase approximately 11% to 14% to be between $106 million and $109 million. As compared to the third quarter of 2019, which we believe is a more relevant comparison, this represents a decline of 3% to 6%.

We expect third quarter adjusted EBITDA to increase approximately 55% to 61% to be between $27.2 million and $28.2 million, which means when compared to 2019, represents a decline of 3% on the low end to flat on the high end.

As Bill noted earlier, our goal is to again achieve 2019 EBITDA levels in Q3, which would mark the fourth consecutive quarter of achieving 2019 levels of profit. For all of 2021, we expect net revenue to reach and possibly exceed $410 million, which represents 95% of 2019's revenue.

And we expect adjusted EBITDA to reach $102 million, which would equal 2019's pro forma adjusted EBITDA. Excluding live events, which we believe is a more relevant comparison, 2021 net revenue will achieve 98% of 2019's revenue and exceed 2019's adjusted EBITDA by 2%. With that, I will now turn the call back over to Bill..

Thanks, Stu. Well done, and thank you to everyone who dialed in this morning. As always, I'd like to thank our Townsquare team, who are the engine behind our strong year-to-date performance and who will be instrumental to Townsquare's future success.

I am incredibly optimistic about Townsquare's future and very proud that in 2021, we are on the path to achieving 2019's adjusted EBITDA level of $102 million, and we are on the verge of a full revenue recovery.

As a digital-first company, the growth in our digital revenue and digital profit has accelerated and is continually propelling us forward each and every day. And I'd like to reiterate that we expect that our total digital net revenue will increase to $250 million within 3 years. As we say internally, how high is high.

And with that, operator, please open the call for any questions..

[Operator Instructions] Our first question is from Michael Kupinski with NOBLE Capital Markets..

And first of all, congratulations on a strong recovery and a great quarter. Just a couple of questions. You mentioned that 57% of Townsquare Interactive's subscribers were derived from outside your radio markets.

Can you talk about the percentage of subscribers that were added in the last quarter and what percent that came from outside your markets?.

Hey, Michael, thank you very much. Hope you're well, good to hear from you again. In the quarter, it was consistent. So I think on the last earnings call and the -- probably the year-end as well, we were at 57% outside of our local markets.

So the good news for us is our in-market continues to scale quite nicely, and our out of market continues to scale quite nicely as well. So that percentage was consistent in the quarter as it was to the prior quarter.

And obviously, extremely satisfied with hitting an all-time high of 1,350 net subscribers added in the quarter and just increasing our confidence in the business, not that it could be much higher than it was before.

But obviously, adding the second location, I think, as I noted in our interview a couple of weeks back, we're looking to accelerate the investment in there, particularly in the back half of this year and then going into our West Coast operation in 2022.

That's why we outlined that total addressable market for Townsquare Interactive at $32 billion in the investor deck, but couldn't be more pleased with the performance and really excited where we're going..

Amazing that you added -- over 1,300 subscribers.

Can you talk a little bit about are you seeing any increased churn or noticing any difference in the amount of churn for the subscribers?.

Yes. We continue to have really the lowest churn we've ever had in the business. I think one of the benefits we talked about, I think, on prior earnings calls is the pandemic really put a spotlight on the importance of a strong digital presence for SMBs.

So our net adds is a combination of increase of sales velocity as well as lower churn and we expect that to continue and continue to invest in.

One of the benefits we have, as you know, is we have a very unique customer service platform and strategy where each business has a customer success manager as opposed to a general customer support phone number or e-mail. So it's really one-to-one digital consulting and just incredibly proud that all of our digital growth is organic.

All the results we're providing here are pro forma and also organic built in-house.

And as I noted in the prepared remarks, the fact that we have this technology team that's built these technology products and platforms, we think is a true differentiator in general and particularly when we're focused outside the top 50 markets, we are quite pleased with the very attractive competitive landscape and then you factor in the level of sophistication we have from a technology and solutions standpoint, and then obviously I believe we have a world-class team across the board at Townsquare..

Got you.

And how long do you think it will take to ramp up the employees to the level that you have in Charlotte in your second office?.

I expect the same level of growth out on the West Coast operation as we had in Charlotte. As a reminder, we literally started with 3 employees in 2012, and we're north of 600 now.

So I expect us to add anywhere from 60 to 80 employees once we're up and running on an annualized basis to the West Coast operation while also continuing to add in Charlotte as well. As I noted in the prepared remarks, we've already hired dozens of people for the West Coast operation during the last 12 months.

I think one of the things we consciously stated, and I think Stu said this well when he said, what a difference a year makes, is, a year ago, we were sharing that our strategy was to cut corporate expenses and other expenses that were more variable in nature, like the 401(k) and other things for the time being and really hold on to our team at the local level and our Townsquare Interactive offices so that as the pandemic subsided, whenever that happened, we would be in the best competitive advantage -- take advantage of that.

So throughout the pandemic in the last 18 months, we've been hiring pretty aggressively, and that will continue to happen over the back half of this year. And then going back to your original question, I expect over the course of -- if we're adding 60 to 80 people, we'll be at 600 people, call it, in 8 to 10 years out there..

Got you. And just one question for Stu. In terms of capital allocation, you mentioned that you're going to -- your plans are to kind of increase investment spend a little bit.

Can you just talk a little bit about the prospects of share repurchases? Are there any covenants that restrict you from doing that? And then also what are -- is the nature of the capital spend that you're anticipating for internally?.

Thanks, Mike. So as Bill had mentioned, and we’ve said consistently, going forward, our first priority is going to be investing in our businesses, specifically our digital businesses. Secondly, we’re going to use that money, excess free cash flow to delever. We really don’t have any plans today, no formal plans to buy back equity.

If the stock reacts in a way where it’s our best use of money at the time, the Board will think about it and obviously we’re aware of it, and we’ll watch it. But our first priority is to invest in our digital businesses..

And our next question is from Jim Goss with Barrington Research..

I would like to take on a couple of other questions to what Michael was pursuing in terms of Townsquare Interactive. I was wondering what the run rate you would expect once the Western office is open.

And where is the line drawn geographically in terms of what the Charlotte offices, people can be pursuing versus the newer areas? And what is the difference in the sales approach for salespeople dealing in owned radio markets versus non-owned? Is there any difference at all? Is it a separate enough business that really doesn't have a great impact?.

Thank you, Jim. All great questions. So I think I captured them all, but obviously feel free to follow up on any.

So in terms of the run rate, once our operation on the West Coast is fully operational, so as I noted on the call -- on the prepared remarks that we expect to open the office in the first half of 2022 and then continue to scale from there in hiring. So as you know, we've consistently, for a few years now, added a minimum of 850 net adds.

My expectation, once we are fully operational, that baseline will increase quite substantially, I would say, by at least 50% in terms of our net add baseline, so call that 1,250, 1,300 net adds once we're fully operational. And I expect that to be probably in the next 12 to 18 months in terms of being fully operational on that.

In terms of geography, it's really more -- so we're going to have a full-service office. So all disciplines will be hired on the West Coast operation just like in Charlotte.

So that includes salespeople, that includes customer support, customer service people, that includes technology people, that includes design people, that includes copyrighters, search engine optimization, everything in essence what we call specialists in each areas.

So partially what will happen is from a customer service standpoint, from the Midwest to the West Coast, that office will ramp up and handle those customers that are located there, so that that time change that we've been really time shifting for Charlotte, so there's more coverage, we won't have to do that as much.

From a sales perspective, as we outlined in the investor deck, I think it's on Slide 11, given the addressable market of almost $9 million target Townsquare Interactive customers, obviously, we're going to continue to focus outside the top 50 markets. That's an incredible important differentiation for us.

We're going to continue to focus on companies with 20 or less employees, less than $5 million in revenue. That gets us to just under $9 million target ideal customers for Townsquare Interactive. The fact that we're sitting at under 25,000 subscribers at the end of Q2 shows the vast addressable market.

So in terms of geography for sales, they won't be limited. It's such greenfield that both offices will be calling around the United States. They won't be limited to how they do that.

The third part of your question, which is very astute, is we have a world-class inside sales team who are calling outside of our markets, and that's what's driving that 50% of the subscriber base -- 57% of the subscriber base that we noted.

In our markets, we've continued to see an increase in sales as well, that's driving partially the record that we set in Q2. The way it works there is if a local salesperson wants to bring along a specialist, they are allowed to do so.

I think it's really important point, and you touched on this, our local salespeople in our local markets are -- bring all solutions to bear, so they go into a client, they do a client needs assessment, and they have everything available for them to sell to help the business grow and reach their goals. So that includes Townsquare Interactive.

That includes Townsquare Ignite and AMPED, all of our digital advertising. Obviously, all of our broadcast solutions, leveraging Townsquare analytics and attribution, our data square platform, live events.

So that's one of the reasons, I mentioned this in my prepared remarks, we believe the reason we're taking local stock share and total spot share as measured by Miller Kaplan and that we outlined on Slide 7 of the investor deck is, as Gordon Borrell said it, if you guys are familiar with Gordon Borrell, he says more and more SMBs want to use less and less providers, solution providers because it's overwhelming for them on how many people are calling on their business each day.

So right now, they prefer to use 2 providers. So the advantage we have is we can provide them such a broad selection of solutions to help them grow their business from digital to broadcast to live events to OTT across the board. And we think that's a real differentiator for our company.

That's partially why we came out of 2020 stating we're a digital-first company, and that's where our growth is driven. But the fact that we go to market with all these solutions, in our view, is even a bigger differentiation in markets outside the top 50. We really believe we're being national, sophisticated scale.

It's a small town America, the businesses that really benefit from it. So Jim, I'll turn it back to you. I think I answered your 3 parts, but happy to expand on that or anything else you'd like..

I think you did on those, but you also segued into the other thing I wanted to ask about, and that is in terms of the trends in the mix of ad spot utilization, just going a little further into that.

Can you talk about or characterize it in terms of, say, spots that are sold as ads versus spots that are promos or severely discounted spots that have the capability of generating additional revenue? And like tie -- perhaps tie that into listener mix by time of day and how the digital sales might impact that capability? I assume you don't change the ad spot load over the course of the day, you're just selling it differently and maybe you can characterize how you can get more out of the ad spots available?.

Right. Definitely. Great question, Jim. I couldn't be more proud of the local Townsquare content contributors. And they're producing content obviously for broadcast, online for our own websites and apps for our social platforms, for our video platforms.

And the fact that we're live and local and continuing to invest in local radio, I believe is another piece of the core differentiator of why we're taking local spot share and taking total spot share. So going to your specific questions, in terms of spots, large majority, 90-plus percent are purchased spots versus promo spots.

We do utilize promotional spots for our own products, like Townsquare Interactive, like Townsquare Ignite, like Townsquare Broadcast. We do utilize our own megaphone. One of the core assets and unique differentiators for us is, on average, our AM/FM broadcast reached 50%, 1 in 2 adults in the markets that we operate in.

So what an incredible megaphone to reach not only people living in the community, but clearly people living in the community who are business owners and small business owners. So we do use those spots to advertise what we can do to help local businesses, but over 90% of what the spots run are paid spots from local advertisers.

You then asked about the listener mix and the spot loads. So spot loads are consistent throughout the day.

Our digital streams, which continue to increase in number of people listening to them as well as time spent listening, we do run less spots on our streams and our streams are accessed through obviously laptops, desktops, mobile phones, mobile apps, smart speakers, any connected device, even connected televisions.

And what I'm really proud of is even our listening trends, as I just noted, we reach 1 in 2 adults on our AM/FM broadcast. That's been incredibly consistent for the last several years in terms of our overall reach. I think everybody on this call knows that radio overtook television in terms of becoming the #1 reach medium.

So in our view, there's no better medium and no better cost-effective ROI for top of the funnel marketing brand awareness than radio. So our listening in terms of reach is stable, a number of people listening on a weekly basis.

And I think, overall, as you've heard me share in other forums, I think part of the challenge for radio has been time spent listening. And the fact that we're live and local and the fact that we're in smaller markets, I'm very proud to say our time spent listening is stable as well.

So the combination of a stable audience and stable listening trends has really benefited us and allows us to continue to take local spots share.

I think you asked about digital sales? Was that your last question?.

Well, I just wondered if digital sales effort tied into filling those spots in the odd times of the day when it -- I would imagine that's the times you can apply CPMs and try to reach whatever audience there is and sort of balance out the ad mix..

Yes. No, that's right. I'm glad you followed up on that because it is important to note, and I think I shared this on the last couple of calls, our average minute rate is incredibly stable as well.

So during the pandemic, when our broadcast advertising declined, I think I noted in the prepared remarks, it was negative 45% in Q2 2020, we kept our average minute rate incredibly stable. And so that was a conscious decision. Obviously, some of our competitors, as we know, dropped rate.

Our feeling was we wanted rate integrity based on our market-leading brands and therefore, our decline in the broadcast revenue was driven entirely by number of clients as opposed to average minute rate. So as the clients come back, obviously, our revenue comes back, and that's what we're seeing sequentially and feel good about it.

As it relates to digital sales being leveraged for the local spots, the great thing is although we're a digital-first company and proud of it, local radio is incredibly important to us. We believe that our digital success would not be what it is without our local radio brands. So we're proud of radio.

We love radio, and we go out there with one ecosystem. We're digital-first, but the 2 go hand-in-hand. So we don't have a separate digital-only sales team, we have local world-class account executives bringing to bear all solutions.

So they are, in fact, in essence leveraging "digital sales" to drive local spot sales, but it's one holistic ecosystem and approach. So hopefully, that makes sense, Jim..

No, it does.

Maybe one last one, although I've taken a lot of time, but the -- your -- the system you've cultivated in terms of your DJs thinking on-air DJs as digital content creators and local social influencers, I would imagine that's attractive to a number of talented individuals like that and I wonder if you then -- how that works in terms of your attraction to them and your compensation scheme? Can you incentivize them in a way that they win, you win? And is that a lot different than it might have been 5 years ago when some of these opportunities weren't really there? And does that also create a source of live events? That will be it..

Yes. What an astute question. I'm almost hesitant to share too much because I think it is quite differentiated, but I will share some. So you're exactly right. The fact that our on-air DJs are digital content contributors as well as on-air contributors and truly local social influencers, it's been a great source of recruitment.

The fact that we're hiring local radio talent to produce content over-the-air as well as online, we've literally hired dozens and dozens and dozens of local DJs over the last 12 months, and we continue to do so now. Couldn't be more proud of our local on-air talent.

They literally are the heart of the company in super serving our communities and inspire me each day.

As it relates to compensation, I don't want to provide too much secret sauce, but I would share as a digital-first company, over the last 12 months, we completely redid our compensation structure for our on-air talent that are also these digital content contributors and local social influencers.

In addition to changing how they're compensated so that they're no longer compensated by ratings, which the majority of were compensated historically tied to ratings and other factors, we dropped that.

The other thing we did is every single on-air talent, every single reporter, every single digital content contributor has a bonus opportunity in this company. That's the first time ever in -- in essence, for the last 12 months, particularly in 2021, a good number of people did not have that opportunity.

And based on our technology platform, based on our solutions, based on our ability to track our revenue across all platforms from broadcast to live events to digital, I think I've shared on this call, the -- our technology team is world-class, and they build our products in-house, and they've been building a CRM tool for us -- I shouldn't say tool, it's truly a platform that provides so much intelligence, so much data intelligence that allows us to operate our business more strategically, more efficiently and with greater insights, that going back to your original question, the compensation structure is not only completely changed for our DJs and digital contributors, I'm proud to share that literally every one of them now has a bonus opportunity where they did not before.

So as you said, as our company does -- continues to grow revenue and profits, they get to participate that in to a one-to-one basis, which I'm quite proud of..

And we have reached the end of the question-and-answer session. I'll now turn the call over to Bill Wilson for closing remarks..

Thank you so much. I know the call went a little longer. Appreciate the questions, couldn’t be more proud of our Townsquare team, couldn’t be more proud of our results that we shared today.

Very much looking forward to deliver the results that we provided on a full year basis in terms of the guidance, increasing our net revenue guidance by $15 million since our last call, increasing our profit guidance by $12 million.

We clearly have a lot of confidence moving forward and look forward to closing out the back half of the year with continued momentum as we head into 2022. So thank you all for dialing in. Stay safe and stay well..

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation..